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Alternative investments are essential to building a broad, risk-tolerant portfolio, particularly in light of recent shifts in markets and central-bank policies, says
Bob Rice, author of "The Alternative Answer: The Nontraditional Investments That Drive the World's Best-Performing Portfolios." Rice, speaking at a recent conference on alternative investments, said a traditional portfolio of 60% stocks and 40% bonds cannot get clients to their investment goals.

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REIT preferred stocks are more appropriate for risk-averse investors, while risk-tolerant investors benefit from REIT common stocks, says Walter Boudry, assistant professor at Cornell University, who recently presented a paper on this issue. He plans to further look into diversification, especially at the company level.

Asking new clients to fill out a risk-tolerance questionnaire is a staple at many firms, but some experts say the tools are faulty because they measure only certain aspects of risk tolerance or ask the wrong questions.

Cedar Realty Trust's focus on narrowing its portfolio to its best-performing assets resulted in a stronger balance sheet, says President and CEO Bruce Schanzer. The REIT's leverage ratio dropped from more than nine times the REIT's debt to earnings before EBITA to less than 7.3 times.

Alternatives can add yield to a portfolio, but these assets also come with risk. Still, many advisers think these investments are worthwhile. More than 75% of institutional investors see alternative investments as essential to diversification, according to studies, with 72% believing that the typical mix of 60% stocks and 40% bonds is no longer an efficient way to achieve returns. Myths about alternative investments include the idea that a 60-40 stock-bond portfolio has low volatility, one expert says. In addition, the term "uncorrelated" can be misleading.